Brazil, the GATT, and the WTO: History and Prospects1 Marcelo De Paiva Abreu2
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1 Brazil, the GATT, and the WTO: history and prospects1 Marcelo de Paiva Abreu2 This paper analyses Brazilian multilateral commercial diplomacy first in the General Agreement on Tariffs and Trade (GATT) between 1947 and 1964, then in the World Trade Organization (WTO) between 1995 and 1999. Participation in the GATT and the WTO has traditionally occupied an important position in the agenda of Brazil’s. The main explanation for this has changed over time. Initially Brazil was interested in the GATT as a developing economy wishing to share the benefits of multilateral trade liberalization and paying only a relatively small “price” in terms of concessions to open its market. After the early 1970’s, with the shift of US policy in the direction of reciprocity, GATT gained interest for the larger developing economies because of its possible role in increasing the leverage of small economies in issues raised bilaterally with the major trading partners. Still more recently, Brazil became a demandeur in market access issues, especially in relation to agriculture. The first section covers the 1947-1980 period and includes the early period dominated by negotiations of the GATT and of the Havana Charter, the first twenty years of the GATT, and the Tokyo Round in the 1970’s. Section 2 analyses the negotiations between 1980 and 1986, which preceded the launching of the Uruguay Round. The third section is on the Uruguay Round. Section 4 considers Brazil’s involvement in GATT dispute settlement between 1980 and 1994. The fifth section is on Brazil and the WTO. Section 6 considers Brazilian long-term multilateral commercial diplomacy in the GATT and the WTO. The final section is on the way ahead. 1. Brazil and the GATT, 1947-1980 Brazil was reasonably active in the negotiations which led to both the General Agreement on Tariffs and Trade in 1947 and to the still-born Havana Charter and International Trade Organization (ITO) in 1948. A provisional General Agreement on Tariffs and Trade (GATT) as well as tariff concessions to be applied after 1948 were negotiated. Brazil was one of the 23 founding fathers of GATT and one of 56 countries represented in the ITO 1 Revised version of paper presented at the conference ‘The International Relations of Brazil: New Possibilities and Old Constraints’, organized by the Centre for Brazilian Studies, University of Oxford, held in St Antony’s College, Oxford, 15-16 March 1999. This paper uses extensively material previously published in Abreu (1994) and Abreu (1996) on Brazil and the General Agreement on Tariffs and Trade (GATT). The author thanks the cooperation of many officials of the Brazilian Ministry of Foreign Affairs, as well of the GATT and the World Trade Organization (WTO) Secretariats. He also thanks for their help or comments Alice R. de P. Abreu, Renato G. Flôres Jr., Andrew Hurrell, Simone S. Lopes, Eduardo H. de M.M. Loyo and Rogério L.F. Werneck. The views expressed are of his exclusive responsibility. 2 Professor of Economics, Department of Economics, Catholic University of Rio de Janeiro. 3 For the initial ITO and GATT negotiations, see Brown (1950) and Mark and Weston (1988). For the first 20 years of GATT from the point of view of developing economies, see Lafer (1971). 2 Professor of Economics, Department of Economics, Catholic University of Rio de Janeiro. 3 For the initial ITO and GATT negotiations, see Brown (1950) and Mark and Weston (1988). For the first 20 years of GATT from the point of view of developing economies, see Lafer (1971). 2 negotiations in Havana.3 As the Havana Charter was not ratified by the United States, the GATT, which had been thought as a provisional arrangement to be absorbed into ITO’s charter, was transformed into the basic set of rules to regulate commercial policies on a multilateral basis and was to survive until 1995 as an ad interim committee of the International Trade Organization. The essential provisions of GATT included the abolition of quantitative restrictions to trade so that protection depended as far as possible only on tariffs; the universal adoption of the most favoured nation clause so that bilateral trade concessions were to be automatically extended to third countries; and the progressive reduction of tariff barriers through the negotiation of reciprocal concessions in multilateral negotiation rounds.4 A concession is made when a contracting party enters into a commitment that duties charged on a specific good will not exceed a specified level ( the tariff is said to be bound at this level). From the point of view of the pure theory of international trade tariffs reduce welfare, especially when imposed by small economies, that is, those unable to influence world prices. Protection is to be essentially explained by political economy arguments: sectors demanding protection have more political clout as their interests are less diffuse than those of the rest of the economy. A successful multilateral trade negotiation can be thought as involving the internal renegotiation of rent-extraction in all contracting partieswith the aim of a multilateral reduction in the level of protection. Important potential advantages from GATT membership, particularly for a small economy, are related to the possible protection offered by its dispute settlement and rule enforcement provisions as well as by the unconditional application of the most favoured nation clause. Until the Kennedy Round of multilateral negotiations (1963-1967), exchange of concessions in the GATT were mostly between developed economies. Some see the developing countries as free riders as tariff reductions were multilateralized by the MFN clause and the offers by developing economies were limited. Others see the GATT as a richmen’s club geared exclusively to meet the interests of developed economies as tariff concessions were mainly irrelevant for developing economies without possible supply response.5 Until 1990 restrictions based on balance of payments became the rule and Brazil’s almost permanent status was that of a country invoking Article XVIII:B of the General Agreement. In the early 1960’s developing countries concentrated their efforts in sidestepping the GATT in negotiations which led to in 1964 to United Nations Conference on Trade and Development (UNCTAD) and to the preferential treatment of developing country exports in the market of developed economies under the Generalized System of Preferences (GSP) established mainly in the 1970’s. Brazilian interest in the Kennedy Round in the 1960’s, similarly to that of other developing countries was rather limited. This 3 For the initial ITO and GATT negotiations, see Brown (1950) and Mark and Weston (1988). For the first 20 years of GATT from the point of view of developing economies, see Lafer (1971). 4 See the General Agreement in GATT (1969). 5 See Golt (1978). 5 See Golt (1978). 3 assessment, based on the evaluation that negotiations would continue to be dominated by the main developed economies, was vindicated by the Round’s results: reduction in average tariffs for products of interest for developing countries was of 20% while that on products interesting developed economies was in the 35-40% range.6 As further negotiations in the UNCTAD in the 1970’s became bogged down Brazil’s attention turned again to GATT, and in particular to the Tokyo Round. This move was also partly prompted by the rising barriers faced by exports of the more advanced developing economies in the markets of the developed economies. In the Tokyo Round (1973-1979) there was for the first time a clear clash between the more advanced developing countries such as Brazil, and the United States, seeking reciprocity in terms of concrete concessions. Little, again, was obtained by Brazil or other developing economies: tariff reduction of 33%, for products for which there was a special interest by developed economies, was again higher than the 26% cut affecting products of interest for developing economies.7 From the point of view of developing countries GATT codes and reform of the GATT system were more important than tariff negotiations. Codes were designed to prevent free riding through the adoption of a MFN clause restricted to specific signatories.8 From the point of view of Brazil the most important code was on subsidies due to importance of the US market for Brazilian manufactured exports and also the Brazilian policy of export promotion based on special fiscal rebates. Brazil was the first developing country to sign the Code on Subsidies agreeing to freeze and then phase out these GATT-illegal subsidies.9 Later signatories of the Subsidies Code such as India and Pakistan entered into much weaker commitments. 10 Reform of the GATT system was discussed in the Framework group which took as basis for discussion a Brazilian proposal which included, among other points, the provision of a legal basis for the GSP so that preferences would be bound and their withdrawal subject to compensation. The main resulting agreements included the binding of the derogation which made GATT-legal non-reciprocity based on special and differential treatment. Developing countries in turn agreed to a quite general declaration that established the principle of graduation which would make developing countries which reached a specific, but undefined, development threshold to strengthen their commitment to GATT obligations..11 6 See UNCTAD (1968), p. 94. See also Preeg (1970), p. 202, for formal complaints at the end of the Round on the asymmetrical results obtained. 7 See Balassa (1980), pp. 97-8 and GATT (1979), pp.120-122. 8 The declaration at the end of the Round that the conditional MFN clause included in the codes did not affect the commitment to unconditional MFN treatment, as per article I of the GATT, underlines the uncertainty surrounding the issue.